China’s Investment as a Percentage of GDP Remains High

In 2010 China’s GDP increased by 10.1% from the previous year to reach $5.98 Trillion. However a large portion of this GDP is due to the country’s fixed investment in infrastructure, property and manufacturing and not consumption.

Following the trend from last year, investment accounted for more than half of the economic growth in the first half of this year. The chart below shows the rise in Chinese investment as a portion of GDP for many years now:

Click to enlarge


Source: Capital Economics via CityWire

Compared to the world average of under 20% China spends about 50% of the GDP on fixed investments. China’s challenge is to reduce fixed investments and stimulate domestic consumption thereby making the economy healthier and less reliant on exports. But this is proving to a difficult task as the Chinese continue to save too much and not spend on consumption.

To put the Chinese figure in perspective, the U.S. investment as a percentage of GDP for 2010 stood at about 15%. Of course, the U.S. need not spend like the Chinese since a solid infrastructure needed for economic growth already exists here. But much of the U.S. infrastructure like airports, highways, bridges, ports, etc. are old and crumbling and have to be upgraded to be equal to other developed countries.

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